Interest rate swaps are financial agreements between two parties to exchange interest rate cash flows over a set period of time. The two parties agree to exchange interest rates, typically one with a fixed interest rate. This is a way for a bank to offer a long-term fixed rate in any interest environment while maintaining a competitive edge with larger banks. Interest rate swap loans allow the borrower to pay a variable rate on the loan, often using The Wall Street Journal prime rate. Under the swap agreement, a borrower receives the same rate that is paid to the bank and pays a fixed interest rate per the terms of the swap agreement.